Joint tenancy is one of the common structures that people can use to own property together. The number of people who can share a joint tenancy is technically unlimited, although the most common number of owners in a joint tenancy is two. Married or unmarried couples holding property together often choose this ownership structure. It is also attractive to small groups of business associates or friends sharing equal access to property.
How does joint tenancy work?
In a joint tenancy arrangement, each owner has an equal interest in the property and an equal responsibility. That means that each owner is equally liable for debts and obligations related to the property and can fully enjoy the benefits of ownership.
One notable element of joint tenancy is the right of survivorship, which means that if one person in the group dies, their share is transferred to the remaining partners in equal shares. This aspect is why couples often prefer joint tenancy—the surviving half of the couple automatically inherits the deceased person’s share, usually without the need for probate.
The right of survivorship differentiates joint tenancy from another standard ownership structure, tenancy-in-common (TIC). With a TIC, owners may also hold unequal shares, and each owner can dispose of their claim without the agreement of the others.
Is the right of survivorship automatic?
In many states, the right of survivorship (passing the deceased partner's share on to the remaining owners or owners) is implied. However, in Texas, it is not. If the joint tenancy arrangement doesn't specify the inclusion of survivorship rights, then the property will likely need to go through probate.
How do joint tenancy arrangements terminate?
Since one frequent use of joint tenancy is by couples holding property together, it follows that a typical reason for ending the agreement is marital dissolution. Typically, in this case, the couple will include the termination of the joint tenancy as part of the divorce proceedings.
In addition, a couple may also prefer to change the ownership structure from joint tenancy to tenancy-in-common, even if they want to continue owning the property together. The motivation for this change may be the right of survivorship. If each person in the couple holding property together wants to bequeath their share to someone other than the co-owner, they can more easily accomplish this result through a tenancy-in-common.
Other groups may need to alter their arrangement for different reasons. Suppose that a joint tenancy consists of five friends sharing vacation home ownership. If one member needs to sell, the entire group must agree to do so, or that person is stuck. The group can make a new arrangement to buy the share of the person wanting to liquidate, or they can all agree to sell and move on.
Suppose the group does not agree to the disposition or change in ownership structure. In that case, one member of the joint tenancy can terminate the agreement by simply conveying their share to another party, as would be the case with a sale. Alternatively, any member can petition a court to terminate the agreement.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
